### *The Honorable James M. Burns, United State s

District Judge for the District of Oregon, sitting by designation. The Honorable William R. Wilson, United S tates District Judge 1 

### for the Eastern District of Arkansas. ____________ Nos. 95-3535/3691

____________ In re: Fairfield Pagosa, Inc.; * Fairfield Communities, Inc., * * Debtors. * *

------------ * * Pagosa Lakes Property Owners' * Association, Inc., a * Colorado Non-Profit * Appeal and Cross-Appeal from the Corporation, * United States District Court for * the Eastern District of Arkansas Appellant/Cross-Appellee. * * v. * * Fairfield Pagosa, Inc.; * Fairfield Communities, Inc.; * First National Bank of Boston, * * Appellees/Cross-Appellants.*

____________ Submitted: April 8, 1996 Filed: October 2, 1996

____________ Before McMILLIAN, FAGG and BURNS, District Judge. *

____________ McMILLIAN, Circuit Judge.
This case is on appeal and cross-appeal from an order entered in the United States District Court for the Eastern District of 1

### The Honorable Robert F. Fussell, United States Bankruptc y 2 

### Judge for the Eastern District of Arkansas. The Pagosa Lakes Property Owners' Association was originally 3 

### named the Pagosa Property Owners' Association.
-2- Arkansas affirming an order of the bankruptcy court in adversar y 2 pro ceedings which arose in the Chapter 11 bankruptcy case for Fairfiel d Communities, Inc. (FC I), the debtor. Pagosa Lakes Property Owners' Ass'n

v. Fairfield Communities, Inc. (In re Fairfield Communities, Inc.) , No. LR

C-94-2 43 (E.D. Ark. Sept. 25, 1995) (hereinafter district court order)

. The b ankruptcy court's order disposed of a claim brought by the Pagos a Lakes Prop erty Owners' Association, Inc. (PLPOA), on behalf of owners of 3 property in the Pagosa Development (Pagosa) loca ted in southwest Colorado, and a counterclaim brought by FCI. Id. , Nos. 92 -4078/92-4079 (Bankr. E.D. Ark. Mar. 11, 1994) (hereinafter bankruptcy court order). On appeal, PLPO A argues that the bankr uptcy court erred in holding that (1) PLPOA does not have e quitable ownership of certain real property within Pagosa unde r either a promissory estoppel theory or a trust t heory and (2) the disputed land is subject to a valid mortgage lien held by the First National Bank of Bos ton (FNBB) notwithstanding a restrictive covenant of use an d enjoyment of the land for the benefit of Pagosa property owners. On cross

appeal, FCI argues that, if PLPOA does have an ownership interest in the disputed property, then that interest is avoided under 11 U.S.C. § 544

. For the reasons discussed below, we affirm.

I.

This c ase concerns the treatment in bankruptcy of certain rea l property referred to as the "recreational amenities" within Pagosa. Pagos a is a 26,000-acre planned community containing residential subdivision s
surrou nding a core business area. The recreational amenities includ e lakes, parks, golf courses, tennis courts, eques trian facilities, and open spaces called greenbelts. In 1990,

### According to PLPOA, at the time FCI filed for bankruptcy , 4 

### title to several of the recreational amenities (including tw o clubhouses, a recreational center, and four lakes) had alrea dy been conveyed to PLPOA. However, FCI still retained title to othe r significant recreational amenities (including a 27-hole gol f course , tennis courts, an equestrian center, and approximatel y 1,000 acres of greenbelt). Brief for Appellant at 7.
-3- a wholly-owned subsidiary of FCI, Fairfield Pago sa, Inc. (FPI), held legal title to the recreational amenities, subject to a mortgage lien held b y FNBB. FPI was the indirect successor in interest to the original develope r of Pagosa, Eaton International Corporation (EIC).

On October 3, 1990, FCI filed for bankruptcy under Chapter 11. FPI
was subs equently merged into FCI as part of the bankruptcy court' s reorga nization plan. PLPOA initiated an adversary proceeding in th e bankruptcy case claiming that, although FCI, as FPI's parent, held legal title to those recreational amenities which had not been conveyed to PLPOA at the tim e of the bankruptcy filing, PLPOA was the true equitable owner 4 of those amenities. On that basis, PLPOA claimed that the property wa s excludable from FCI's bankruptcy estate.

The bankruptcy court held an eight-day trial on PLPOA's claim o f equitable ownership of the recreational amenities and related issues raise d by FCI, the debtor, and FNBB, the mortgage lienholder. Twenty-nin e witnesses testified at the trial. Following the trial, the bankruptc y court set forth its findings of fact and conclusions of law in a 63-page memorandumopinion. The detailed findings of the bankruptcy court ar e briefly summarized as follows.

EIC began construction of Pagosa in 1969. Bankruptcy court order, slip op. at 6. In 1983, FCI purchased the stock of EIC. FPI, FCI' s wholly-owned subsidiary, became the owner and manager of Pagosa. Id. at 6 & n.7. (Hereinafter, EIC and its successors in

### Between 197 0 and 1979, EIC recorded and amended similar DORs 5 

### for various Pagosa subdivisions, relating to particular parc els and particular uses. Those DORs a ll contained the same language as in the master DOR's Paragraph 10. Pagosa Lakes Property Owners ' Ass'n v. Fairfield Communities, Inc. (In re Fairfield Communities, Inc.) , No. LR-C-94-243, slip op. at 3 (E.D. Ark. Sept. 25, 1995 ) (hereinafter district court order).
-4- int erest vis-a-vis the Pagosa Development are sometimes categoricall y referred to as "the developer.") While the development of Pagosa was in its early stages, EIC formally established PLPOA . The terms governing the power s and duties of PLPOA and its membership were stated in document s entitled "Declarations of Restrictions" (DORs). In 1970 and 1971, EI C recorded DORs in the office of the Clerk and Rec order of Archuleta County, Co lorado. Id. at 6. Of particular importance in the present case i s

5 Paragraph 10 of the DORs, which states (emphasis added):

10. OWNERSHIP, USE AND ENJOYMENT OF PARKS AN D RECREATIONAL AMENITIES
A. Al l parks, recreational facilities and othe r amen ities within the Subdivision are private, an d neither [the developer's] recording of the plat nor any other act of [the developer] with respect to the plat , shall be construed as a dedication to the public, bu t rather all such parks, recreationa l facilities and other ameniti es shall be for the use and enjoyment of members or asso ciate members of [PLPOA] , to residents of rental prope rties, other classifications of persons as may b e designated by [the developer], and to the guests of such memb ers of [PLPOA] or other residents of Pagosa wh o qualify for the use and enjoyment of the facilities.
B. Th e ownership of all recreational facilitie s within the Subdivision shall be in [the developer] o r its designee, however, [the developer] may convey o r otherwi se transfer any or all of the facilities t o [PLPOA] and such conveyance shall be accepted by it , pro vided it is free and clear of all financia l encumbrances.

Id. at 7.

### The district court refers to the Property Reports as "HU D 6 

### Reports." See id. at 4.
-5- Other documents introduced as evidence at trial included "Property Reports" (PRs), which the developer was required by federal la w to provide 6 to prospective property buyers, and "Statements of Record" (SORs), which
were filed by the developer with the Department of Housing and Urba n Development. The lan guage contained in these reports varied. On the one hand, some of these d ocuments expressly provided that the developer would from time to time turn over or transfer to PLPOA unencumbered recreational amenities. Id. at 8-9, 13-14. Among those documents, some stated that th e timing of such transfers would depend on the construction of the commo n facilities, progress of the development, and PLPOA's financial ability to maintain the recreational amenities, id. at 9, 14; and yet others expressl y noted tha t the developer reserved the right or the option to retain th e recreational amenitie s. Id. at 8, 13-14. On the other hand, some of the documents did not mention transfer of the recreational amenities at all. Id. at 9-11. Additionally, some of the document s specifically referred to FNBB's interest in the Pagosa property as a creditor of FCI. Id. at 10, 12, 17.

The bankruptcy court also received into evidence numerous other form s of d ocumentary evidence, including real estate contracts, contracts o f sale, statements of conditions of agreement, and purchase and sal e agreements which had been executed by purchasers of Pagosa property. Id. at 42-43. Referring to this body of documentary evidence, the bankruptcy court observed "[t]here is no mention in any of [these] documents of any conveyance of the [recreational] amenities." Id. at 43.

One of the witnesses who testified at trial was David Eaton, vic e president and later president of EIC. Id. at 17 . Eaton had been employed by EIC from 1968 to 1983. Eaton testified that he

### -6-

put the DORs in writing and that, at the time, h e intended to retain EIC's ownership of the recr eational amenities by preserving an option either to dispose of or to keep the recreational amenities in the future. Id. at 17

- 18. He further testified that the PRs and SORs were meant to be consisten t with the DORs. Id. a t 18-19. On cross-examination, Eaton also testified that in the Stock Purchase Agreement, through which FCI purchased all of EIC 's assets, EIC represented that it had good, valid, and merchantabl e tit le to all the properties conveyed to FCI, including the recreationa l amenities which were carried on EIC's books. Id. at 19. He confirmed tha t the stock purchase agreement did not list any right or claim of PLPOA to ownership of the recreational amenities. Id. Randy Warner, founder and former president and chairman of FCI, testified that he was familiar with the 198 3 stock purchase as well as the documents related to th e recreational amenities and that he understood that EIC had no obligation to convey the recreational amenities to PLPOA. Id. at 40-41.

Leonard Avery Carey, a former vice president of EIC and genera l
man ager of Pagosa during the years 1972 to 1979, testified that h e authorized sales representatives under his super vision to tell prospective purchasers of Pagosa property that the amenities would be conveyed to PLPO A upon the completion o f projects and PLPOA's financial ability to maintain such property. Id. at 22. This testimony by Carey was confirmed by the testimony of numerous other witnesses, including EIC representatives who sold Pagosa properties and individuals who purchased Pagosa properties fro m EIC. Id. at 22-36. By contrast, individuals, w ho were employed by FCI at
or following the time FCI bought out EIC's stock, testified that FCI did not refer to PLPOA's eventual ownership of the recreational amenities as a selling point to po tential property owners; in fact, they testified, it
was FCI's policy to refer to the recreational amenities as FCI's assets, consistent with the language of the DORs, the PRs, and the SORs. Id. at 36-41.

### -7- FCI also presented evidence demonstrating that it had made capital inv estments of approximately $3.2 million for improvements to th e
recrea tional amenities and that it had consistently covered all cost s associ ated with the recreational amenities for which it retained lega l title. Id. at 41.

Finall y, regarding the topic of FNBB's mortgage lien, FNB B introduced evidence showing that it initially secured a lien on th e amenities in 1983, wh en Pagosa was added as collateral for a pre-existing loan from FNBB to FCI

. Id. at 45. That lien was documented in a Deed of Trust dated March 2, 1983, and duly recorded in the office of the Clerk an d Recorder of Archuleta County, Colorado, on March 4, 1983. Id. At trial, the parties agreed by stipulation that "FNBB is the owner and holder of a mortgage lien on the property which is the subje ct of this lawsuit (except Pinion Lake)." Id. at 46.
Following the trial, the bankruptcy court concl uded: (1) FCI was the legal owner of the recreational amenities at the time of its bankruptc y filing; (2) FCI was also the equitable owner of the recreational amenities at the ti me of its bankruptcy filing; (3) FCI's legal and equitabl e
own ership were subject to a restrictive covenant; (4) FNBB's liens wer e valid; and (5) FCI's counterclaim pursuant to 11 U.S.C. § 544 was moot wit h respect to the ownership issues, and § 544 did not apply to the restrictiv e covenant. Id. at 56-62. In sum, the bankruptcy court held that th e recreational amenities were legally and equitabl y owned by FCI, subject to the mortgages and liens held by FNBB and the res trictive covenant. Id. at 62-63.
On appeal, the distr ict court affirmed the bankruptcy court's order in its entirety. District court order, slip op. at 17. This appeal and cross-appeal followed.

### -8- II.

PLPOA argues that the bankruptcy court erred in holding that PLPOA is not the equitable owner of the recreational amenities under either a promissory estoppel theory or a trust theory. To begin, PLPOA maintains that under the "collateral matters" doctrine, co llateral oral promises are enforceable under Colorado law. See Stevens v. Vail Assocs. , 472 P.2d 729 , 731 (Colo. Ct. App. 1970) ("[w]e determine the b etter rule to be that oral agreements as to off-site improvements or land u ses of adjacent properties may be independent collateral agreements which n eed not be included in the deed conveying property and are not merged"). Moreover, PLPOA argues, a party making such collateral promises may be equitably estopped fro m asserting its technic al legal rights. See Kiely v. St. Germain , 670 P.2d 764, 769 (Colo. 1983) (en banc) (recognizing as part of Colorado common la w the pr omissory estoppel provision of the Restatement (Second) o f Contracts). PLPOA ar gues that, in the present case, the bankruptcy court
was bou nd to consider promises made outside of the written agreement s between purchasers of Pagosa properties and sale s representatives for EIC, FCI's predecessor in interest. PLPOA thus points to evidence that EI C representatives promised prospective purchasers of Pagosa property that th e
rec reational amenities would be transferred to PLPOA upon certai n conditions. Furthermore, PLPOA maintains, purchasers of Pagosa property reasonably relied upon EIC's collateral promises in deciding to buy Pagosa prop erties. Consequently, PLPOA concludes, the purchasers obtained a n equitable ownership interest in the recreational amenities under a promissory estoppel theory. Therefore, while the DORs did not create a legal obligation for the developer to turn over the recreational amenities , PLPOA argues, those d ocuments together with the developer's oral promises did create such a legal obligation which was contingent upon certai n conditions being met. PLPOA then argues that those conditions have been met because the bankruptcy

### -9-

court ordered FCI to convey the last 900 available lots to Archuleta Count y in payment of back taxes, thereby substantially completing the development and also establishing PLPOA's financial ability to maintain th e
rec reational amenities (because all Pagosa property owners, includin g Archuleta County, are required to pay fees to PLPOA).

PLPOA alternatively argues that, as a result of FCI's purporte d obligation to convey the recreational amenities to PLPOA, FCI has become
a trustee holding bare legal title to the recreational amenities for the ben efit of PLPOA's members -- the owners of the equitable estate. I n support o f this trust argument, PLPOA relies on Bishop & Diocese o f Colorado v. Mote , 716 P.2d 85, 100 (Colo.) (en b anc) ( Mote ), cert. denied , 479 U.S. 826 (1986), in which the Colorado Supreme Court held that the "th e intent to create a trust can be inferred from the nature of propert y transactions, the circumstances surrounding the holding of and transfer of property, the particular documents or language employed, and the conduct of the parties." PLPOA argues that, in the present case, the DORs manifes t the parties' intent t o create a trust because it declares that all Pagosa property owners and residents have a continuous, perpetual right to use an d enjoy the recreational amenities; in other words, PLPOA argues, "th e declaration creates a continuing benefit to be exclusively enjoyed by the defined class of 'beneficiaries'" and therefore vested ownership in that class. Brief for Appellant at 35.
Finally, PLPOA argues that the bankruptcy court erred in holding tha t the recreational amenities are subject to a valid mortgage lien held b y FNBB. PLPOA contends that, when FCI used the recreational amenities a s collateral for a loan from FNBB, the mortgage li en could not attach to the equitable estate which had already vested in the Pagosa lot owners

. Theref ore, PLPOA maintains, "since the mortgage cannot attach to th e equitable estate, its purported attachment to FCI's legal title is

### -10-

ineff ective to prevent transfer to PLPOA because that title is held a s trustee for the benefit of the property owners." Brief for Appellant at 44.

III.

When a bankruptcy court's judgment is appealed to the district court , the district court acts as an appellate court and reviews the bankruptcy court's legal determinations de novo and finding s of fact for clear error. Wegner v. Grunewaldt , 821 F.2d 1317, 1320 (8th Cir. 1987). As the second court of appellate review, we conduct an independent review of th e bankruptcy court's judgment applying the same standards of review as the dis trict court. Id. With these standards in mind, we have carefull y considered the record before us and the arguments presented by the parties

. We conclud e that PLPOA is not the equitable owner of the recreationa l amenities.

As PLPOA recognizes, the purchase agreements which governed Pagosa lot sal es did not mention the transfer of the recreational amenities

. Other relevant documents (i.e., those which were either on public record
or sho wn to prospective purchasers of Pagosa properties) expressly o r implicitly indicated that the developer retained the right, or option, to dis pose of the recreational amenities. In particular, the DORs provid e that "[t]he ownership of all recreational facilities . . . shall be in [th e developer]" and the developer "may convey . . . any or all" of th e recreational amenities to PLPOA. PLPOA is required to accept title upon such c onveyance, unless the property is financially encumbered or th e releva nt project has not been substantially completed or PLPOA lack s financial ability to maintain the property in qu estion. Therefore, if FCI had not exercised its option to convey some of the recreational amenities at the time of its ba nkruptcy filing, PLPOA had not acquired an ownership interest in those amenities.

### For example , the real estate contracts stated that "no agent 7 

### or representative of the 'Seller' shall have any authorit y whatsoever . . . to make any other agreement or representation on behalf of the 'Seller.'" Pagosa Lakes Property Owners' Ass'n v

. Fa irfield Communities, Inc. (In re Fairfield Communities, Inc.) , Nos. 92-4078/92-4079, slip op. at 55 (Bankr. E.D. Ark. Mar. 11 , 1994 ) (hereinafter bankruptcy court order) (quoting real estat e contracts). The contracts of purchase contained a legal description o f 8 

### the property that was being sold and did not mention an ownership interest in the recreational amenities. Id.
-11- As to the representations made by EIC sales representatives t o pro spective lot purchasers, the bankruptcy court did not clearly err i n find ing that the Pagosa lot purchasers' alleged reliance on the ora l representations of EIC sales representatives regarding the conveyance of the r ecreational amenities to PLPOA was not reasonable in light of th e purchasers' constructive notice of the DORs, the express language to the contrar y contained in the documents which they signed, and the relevan t 7 written descriptions of the property being sold. Bankruptcy court order, 8 slip op. at 54-55. Thus, the bankruptcy court did not err in concluding that, under a promissory estoppel analysis, PLPOA is not the equitabl e owner of the recreational amenities.

We also hold that PLPOA's trust argument fails on the merits , notwithstanding FCI's contention that PLPOA failed to advance this trust argumen t in the bankruptcy court. Under Colorado's statutes, a trus t conveying title to real estate, unless created b y act or operation of law, must be in writing and signed by the grantor. C olo. Rev. Stat. Ann. § 38- 10-106 (W est 1996). No such signed written trust exists in the presen t
case. To the extent PLPOA suggests that the DORs may be construed as a writt en trust, there is insufficient evidence of an intent to create a trust, as required under Colorado case law. Ayres v. King (In re Estate of Daniels) , 665 P.2d 594, 595 (Colo. 1983) (en banc) ("In order to create an express trust it is essential that the settlor intend

### -12-

that a trust come int o existence."). While "Colorado recognizes that the intent to create a trust can be inferred from the nature of propert y transactions, the circumstances surrounding the holding of and transfer of property, the particular documents or language employed, and the conduct of the parties," the inference of an intent to create a trust must com e from"'[c]lear, explicit, definite, unequivocal and unambiguous language or conduct.'" Mote , 716 P.2d at 100 (citations omitted). In the present case, neither the language of the relevant documents nor the conduct of th e parties -- including the statements made by sales representatives for EIC

-- satisfies this standard. Accordingly, no finding of a trust i s warranted as a matter of law.

IV.

In su m, upon careful de novo review, we hold that the bankruptc y court correctly concl uded that PLPOA does not have an equitable ownership interes t in the recreational amenities. We agree with the bankruptc y
cour t's conclusion that PLPOA's interest in the recreational amenitie s exists in the form of a restrictive covenant, which is manifested in the DORs' dedication of the parks, recreational facilities, and other amenitie s to the use and enjoyment of members or associate members of PLPOA and othe r qua lifying Pagosa residents. As to FNBB's interest in the recreationa l amenities, we further agree with the bankruptcy court's determination that FN BB duly recorded its lien, which remains valid, subject to th e restrictive covenant held by PLPOA, of which FNBB had constructive notice via the DORs on recor d. Finally, having held that PLPOA does not have an equitable ownership i nterest in the recreational amenities, we dismiss as moot FCI' s cross-appeal asserting that, if PLPOA is held to have a n equitable ownership interest, 11 U.S.C. § 544 operates to avoid

### FCI does not argue that § 544 avoids PLPOA's restrictiv e 9 

### covenant, although conceivably that argument might be inferr ed from FCI's claim that "[t]he bankru ptcy court erred in determining that § 544 does not avoid any equitable interest of the PLPOA in th e recreational amenities." Brief for Appellee/Cross-Appellant FCI at 46. In any case, we agree with the bankruptcy court's conclusion that, in the present case, § 5 44 does not operate to avoid PLPOA's restrictive covenant. Bankruptcy court order, slip op. at 61-62.
-13- PLPOA's interest. 9
For the foregoing reasons, the order of the dis trict court affirming the order of the bankruptcy court is affirmed.

A true copy.
Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.